Pound sets new 31-year low against US dollar

The pound dropped yesterday, reaching lows against the US dollar not seen since 1985, as the British central bank warned the outlook for financial stability was "challenging".

The Bank of England eased commercial banks' capital requirements to boost lending, saying financial risks had "begun to crystallise" in the aftermath of a British vote to leave the EU.

Around 1545 GMT, the British currency stood at $1.3032, having earlier slipped to $1.3028, a level last seen in the summer of 1985.

"A downward trend in the pound seems to have been triggered thanks to the measures taken by the Bank of England and the possibility of the pound returning to parity with the euro," said Sylvain Loganadin at online trading firm FXCM.

It was quoted at 85.07 pence against the euro, below its two-year low seen post-Brexit, having earlier slipped as far as 83.89 pence.

The pound could well fall further, predicted Capital Economics analyst John Higgins.

"The ongoing economic and political uncertainty, as well as the backdrop of the UK's huge current account deficit, would surely justify a bigger decline," he said.